Reid has not yet discussed his plans with Byrd. But in a recent closed-door meeting with his advisers in Las Vegas and a private conversation with Sen. Daniel Inouye (D-Hawaii), Reid has laid out a scenario that would have Inouye — the committee’s second-ranking Democrat — taking over Byrd’s chairmanship by the time the 111th Congress convenes in January.

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Byrd — the longest-serving senator in U.S. history — would become chairman emeritus, likely retaining coveted office space in the Capitol near the Senate floor. He would also remain Senate president pro tempore, which leaves him third in line to the presidency even though his health now makes even routine public appearances both arduous and awkward.

A number of Democratic senators pushed to have Byrd replaced as chairman earlier this year. Reid intervened on Byrd’s behalf then, but sources close to the majority leader say his own political fortunes are a factor now.

Reid (D-Nev.) is up for reelection in 2010, and he’ll be a major target for the Republicans — especially if Barack Obama wins the White House and Democrats succeed in knocking off Senate Minority Leader Mitch McConnell (R-Ky.) next week. With an eye on the challenges ahead, Reid and his advisers are looking to resolve chairmanship issues in the Senate now so that he has a “free hand to get his reelection campaign up and running,” a source close to the majority leader said.

Byrd’s future is at the top of the list of Reid’s concerns — and it’s one he hopes to address before the lame-duck session of Congress opens on Nov. 17.

Byrd was first elected to the Senate in 1958 — three years before Barack Obama was born — and has held virtually every leadership position there. But he has been hospitalized several times in the past year, and Democratic senators and leadership aides say he is no longer capable of running the powerful Appropriations Committee.

He can still deliver a powerful speech, but his words come slowly, and he sometimes uses a wheelchair. Byrd traveled to Charleston last week to introduce Delaware Sen. Joe Biden at a morning rally, and he struggled to get through his written remarks — though his partisan spirit was still obvious, as was the home crowd’s affection for him.

Reid himself has come to believe that Byrd should give up the Appropriations chairmanship “for the best efficiency of the committee,” Democratic insiders say. Reid has all but offered the job to Inouye, the sources said, adding that Reid will probably take up the subject with Byrd after next week’s election.

Byrd could make it easier on Reid by taking it upon himself to step aside. But it’s not clear whether he’ll do so — Byrd has taken some delight in holding on before — and his office declined to comment on his plans.